EUR/USD – Euro Shrugs Off Strong German Trade Surplus

EUR/USD continues to have a quiet week. Currently, the pair is trading at 1.1806, up 0.11% on the day. On the release front, Germany’s trade surplus improved to EUR 21.2 billion, above the estimate of EUR 20.8 billion. In the US, today’s major event is US JOLTS Jobs Openings, which is expected to improve to 5.74 million. On Wednesday, the US releases two employment indicators – Preliminary Nonfarm Productivity and US Preliminary Unit Labor Costs.

The euro has been on a roll over the past few months, as EUR/USD has soared 10.7% since April 1. Last week, the euro briefly pushed across the 1.19 line, its highest level since January 2015. Although the US economy is in better shape than the eurozone, investors have snapped up the continental currency, as expectations remain high that the ECB is not far away from starting to wind down its ultra-easy monetary policy. The cautious ECB has not provided any dates for a change in policy, but in June, ECB President Mario Draghi  spoke about a “strengthening and broadening recovery” in the eurozone, and this sent the euro soaring. Clearly, any hints from the ECB about tightening policy could send the euro higher. In contrast, the dollar has taken a beating, as Donald Trump’s antics and inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve’s monetary policy remains unclear. Earlier this year the Fed strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to “transient” factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed’s target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 33%, compared to 43% a week ago.

A strong US economy continues to grapple with weak inflation, which is also apparent in the labor market. Although the nonfarm payrolls report in July easily beat expectations and the unemployment rate dropped from 4.4% to 4.3%, wage growth remains a sore point. In July, Average Hourly Earnings remained unchanged at 0.3%, and the indicator has failed to break above 0.3% in 2017. The weakness in earnings growth has puzzled economists, as a red-hot labor market should translate into higher wages. In fact, wage growth has actually slowed in 2017, and this could have significant economic repercussions, as consumers are responding by holding tight on the purse strings and reducing spending.

Could German Elections Shake the EU?

EUR/USD Fundamentals

Tuesday (August 8)

• 2:00 German Trade Balance. Estimate 20.8B. Actual 21.2B
• 2:45 French Government Budget Balance. Actual -62.3B
• 2:45 French Trade Balance. Estimate -5.1B. Actual -4.7B
• 6:00 US NFIB Small Business Index. Estimate 103.6
• 10:00 US JOLTS Job Openings. Estimate 5.74M
• 10:00 US IBD/TIPP Economic Optimism. Estimate 50.6

Wednesday (August 9)

• 8:30 US Preliminary Nonfarm Productivity. Estimate 0.7%
• 8:30 US Preliminary Unit Labor Costs. Estimate 1.1%

*All release times are GMT

*Key events are in bold

EUR/USD for Tuesday, August 8, 2017

EUR/USD Tuesday, August 8 at 4:45 EDT

Open: 1.1795 High: 1.1824 Low: 1.1792 Close: 1.1808

EUR/USD Technical

EUR/USD edged higher in the Asian session. In the European session, the pair is flat

• 1.1712 is providing support
• 1.1876 is the next resistance line

Further levels in both directions:

• Below: 1.1712, 1.1616 and 1.1534
• Above: 1.1876, 1.1996, 1.2108 and 1.2221
• Current range: 1.1712 to 1.1876

OANDA’s Open Positions Ratio

EUR/USD ratio showed gains towards short positions in the Monday session. Currently, short positions have a majority (67%), indicative of EUR/USD breaking out and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.